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Global stocks Shares

Facebook Posted Impressive Q2 results; 2H2021 Represents Tougher Comps; Increasing FVE to $407

We are pleased with Facebook’s continuing enhancement of its platforms as it improves e-commerce functionality, increases video content, and introduces more audio content, which support the firm’s network effect moat source on the user and advertiser sides, increasing overall ad inventory. Facebook is also investing in innovation for the long-run, including Metaverse, which we view as the next stage of growth and development in virtual reality. While Metaverse is likely to require more interoperability between many platforms and may slowly erode Facebook’s walled garden, the firm’s current network effect moat source should maintain more users on the Facebook side of the Metaverse.

Management guided for significant deceleration in revenue growth during the second half of this year, which we had already modeled in. Total revenue of $29.1 billion was up 55.6% year over year due to higher ad prices and an increase in users. Facebook benefited from ongoing strong demand for direct response and the resurgence of brand advertising. Monthly active users increased 7% and 2% year over year and from last quarter, respectively, to nearly 2.9 billion. Engagement remained at around 66% as daily active users increased to 1.9 billion (also up 7% from last year and 2% sequentially).

Strong Revenue Growth

Strong revenue growth during the quarter created operating leverage for Facebook resulting in 42.5% operating margin, compared with 31.9% last year. Management expects yearover- year revenue growth during the second half to “decelerate significantly.” The firm provided a bit more color by stating that the slowdown will be modest when comparing the second quarter 2021 with the same period in 2019 (revenue up 72.2%). The firm still expects full-year operating expense between $70 billion and $73 billion and capital expenditures of $19 billion-$21 billion.

Metaverse to take hold and attract billions of users, the virtual world needs to be more interoperable, like the physical world where users can easily experience many different environments and interact with different individuals and groups. Allowing interoperability may represent a risk to the network effect of platforms like Facebook. However, in our view, given Facebook’s 2.9 billion users and strong network effect moat source, the firm’s Horizon will be a step ahead of competitors in attracting users and quickly building the virtual environments, which should attract more users, content creators, businesses, and advertisers.

Company Profile

Facebook is the world’s largest online social network, with 2.5 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm’s total revenue, with 50% coming from the U.S. and Canada and 25% from Europe. With gross margins above 80%, Facebook operates at a 30%-plus margin.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Dividend Stocks Shares

Xcel Energy Pushing Through Its Regulatory Agenda; Raising Fair Value Estimate

On July 2, Xcel filed a $343 million rate increase request that we think will be one of its most important and hotly debated rate requests ever in Colorado, its largest jurisdiction. The proceedings during the next six months will test whether regulators are willing to raise customer rates to pay for Xcel’s clean energy and safety investments along with supporting Colorado law that requires Xcel to supply 100% carbon-free electricity by 2050.

Rate settlements in Xcel’s

The Colorado outcome could affect Xcel’s five-year, $24 billion investment plan and management’s 5%-7% annual earnings growth target in the near term. That difference accounts for about 15% of Xcel’s rate increase request. Rate settlements in Xcel’s three smallest jurisdictions are in line with our estimates. In New Mexico, Xcel settled for a $62 million rate increase ($88 million request) and 9.35% allowed ROE (10.35% request). In Wisconsin, Xcel settled for a $45 million combined electric and gas rate increase in 2022 and a $21 million combined rate increase in 2023 based on a 9.8% allowed ROE in 2022 and 10% allowed ROE in 2023. In North Dakota, Xcel settled for a $7 million rate increase ($13 million revised request) and 9.5% allowed ROE (10.2% request).

Company Profile
Xcel Energy manages utilities serving 3.7 million electric customers and 2.1 million natural gas customers in eight states. Its utilities are Northern States Power, which serves customers in Minnesota, North Dakota, South Dakota, Wisconsin, and Michigan; Public Service Company of Colorado; and Southwestern Public Service Company, which serves customers in Texas and New Mexico. It is one of the largest renewable energy providers in the U.S. with one third of its electricity sales coming from renewable energy.

(Source: Morningstar)
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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Sonic Has a Record Second Quarter, Joining the Dealer Space.

Modern financier with papers sitting in front of computer monitor with chart and graph of sales rate

We are raising our fair value estimate to $60 from $58. The change is from the time value of money, higher revenue growth based on how 2021 is unfolding, and a 20 basis point increase in our midscale operating margin including floor plan interest to 3%. We made the latter change to reflect our expectation of better overhead cost leveraging long-term due to the chance that inventories will be lower than pre-pandemic levels after the] semiconductor shortage ends, which should enable better pricing power long-term. Sonic is also due to introduce a digital commerce platform in the fourth quarter that will start at the Echo Park used vehicle stores but likely be rolled out companywide over time. This platform could enable further overhead cost efficiencies long-term.

Second-quarter results were in our view strong and we are encouraged to see same-store revenue up 24.9% compared with the second quarter of 2019. The lucrative service business also did well with same-store service gross profit up 6.9% versus second-quarter 2019. We see more upside this year from this nearly 50% gross margin business because the warranty side of it has not rebounded yet from the pandemic while customer pay has; and management said its California stores, which made up 26.4% of 2020 total revenue, have not rebounded as much from the pandemic as the rest of Sonics stores.

Company’s Future Outlook

Echo Park lost $14.4 million in pretax income for the quarter as high auction prices made sourcing inventory more expensive. Management now sees Echo Park annually selling two million vehicles once it is mature sometime in the 2030s. The more noteworthy news though is Sonic’s board is “considering a full range” of alternatives for Echo Park and has hired Lazard and Kirkland & Ellis as advisors, though no deal may occur. We’d prefer to see Echo Park get larger over time before a divestiture so Sonic shareholders could benefit but it is possible that a sale or spin-off, should it occur, could unlock value for Echo Park not currently recognized by the market. The downside, in our view, of divesting Echo Park is once it’s gone from Sonic; Sonic will not have an exciting growth story to talk about beyond its franchise business. We have about $36 billion of Echo Park revenue modeled for 2021-25.

Company Profile

Sonic Automotive is by our estimate the sixth-largest public auto dealership group in the United States by new-vehicle unit sales. The company has 84 franchised stores in 12 states, primarily in metropolitan areas in California, Texas, and the Southeast, plus 25 Echo Park used-vehicle stores. In addition to new- and used-vehicle sales, the company derives revenue from parts and collision repair, finance, insurance, and wholesale auctions. Luxury and import dealerships make up about 88% of new-vehicle revenue, while Honda, BMW, Mercedes, and Toyota constitute about 60% of new-vehicle revenue. BMW is the largest brand at over 24%. 2020’s revenue was $9.8 billion, with Echo Park’s portion totaling $1.4 billion.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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LICs LICs

Whitefield ltd Joins LIC Raisers

Whitefield, which has a $500 million investment portfolio, is anticipated to utilise the funds to Re launch the LIC, which is now only thinly traded due to its size.

Whitefield is managed by stockpicker Angus Gluskie’s Sydney-based White Funds Management. Commonwealth Bank, CSL, Westpac, NAB, and ANZ were its top holdings as of June 30.

On 14th July Morning, Whitefield stock was put on hold. In the year ended June 30, the company’s investment portfolio returned 25.6 percent before fees and taxes.

Company Profile

Our solutions support our clients’ mission critical business operations by providing proprietary and curated data and analytics to help drive informed decisions and improved outcomes. In an ever-increasing digital world, data is found everywhere. Data can describe the past or be of the moment.  Data fuels analytics that can anticipate the future.  And, data is most valuable when it drives action that moves an organization towards its goals.  Leading organizations use data and data-driven platforms to create a competitive edge. Our solutions derive data-driven insights that help clients target, grow, collect, procure and comply–even in changing times.

(Source: Fact Set)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

BioMarin Maintaining FVE in the Quarter 2 as the 2021-22 Launches Approach

despite the headwind from generic Kuvan. BioMarin raised guidance for each of these drugs based on sales in the first half of the year, leading to expected non-GAAP income of $190-$240 million for the year, up from prior guidance of $170-$220 million.

Recent data indicates that Roctavian has continued durability of efficacy through five years, although factor VIII levels continue to decline over time, hinting that the efficacy of BioMarin’s gene therapy will not last a lifetime. Despite this, we think there is still a place for Roctavian, especially considering its significant lead over other gene therapy programs as well as the likely positive reception from patients.

Company’s Future Outlook

Two drug candidates continue to drive our expectation for significant increases to revenue growth beginning in 2022. BioMarin expects European approval of Voxzogo (vosoritide for achodroplasia) in the third quarter and Roctavian (hemophilia a gene therapy) in the first half of 2022. In the U.S., we expect Voxzogo to gain approval by its PDUFA date in November 2021, and Roctavian should be filed with the FDA in the second quarter of 2022, once two-year data from the phase 3 studies is available in early 2022.

In addition, the Institute for Clinical and Economic Review also determined that a potential price tag of $2.5 million would be cost effective based on three years of efficacy data, which gives us confidence in our blended global price tag of roughly $1.2 million per patient.

Company Profile

BioMarin’s focus is on rare-disease therapies. Genzyme (now part of Sanofi) markets Aldurazyme through its joint venture with BioMarin, and BioMarin markets Naglazyme, Vimizim, and Brineura independently. BioMarin also markets Kuvan and Palynziq to treat the rare metabolic disorder PKU (in addition to long-standing U.S. rights, BioMarin has reacquired international rights for Kuvan and Palynziq from Merck KGaA). BioMarin’s Roctavian (hemophilia A gene therapy) and vosoritide (treatment for achondroplasia) are poised to potentially launch in the 2021-22 timeframe.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

After a strong second quarter, Colfax raises its full-year outlook for 2021, as well as its fair value estimate

Our fair value increase reflects Colfax’s strong results, an improved near-term outlook, and time value of money, partially offset by the implementation of a probability-weighted change in the U.S. statutory tax rate in our model.

Colfax delivered stellar 59% year-over-year revenue growth, as sales rebounded strongly from last year’s depressed levels due to initial pressure from the coronavirus outbreak. Colfax’s revenue was also up 9% from prepandemic levels in the second quarter of 2019, with improvement in both segments. On an organic sales-per-day basis, second-quarter sales increased 44% year over year in fabrication technology and 54% year over year in the medical technology segment.

Colfax continues to grow its reconstructive business through M&A, aiming to grow the platform to $1 billion in revenue within the next five years. The company announced the acquisition of Mathys Bettlach for roughly $285 million. Mathys is a Swiss-based orthopedics company whose portfolio includes products for artificial joint replacement and synthetic bone replacement. Colfax expects the business to generate roughly $150 million in sales and $15- $20 million in EBITDA in 2022.

Company Profile
Colfax is a diversified technology firm that produces welding equipment and medical devices. Following the sale of its air and gas handling business in 2019, Colfax’s remaining portfolio is organized into two segments: fabrication technology and medical technology. Fabrication technology is a leading manufacturer of equipment and consumables used in welding, cutting, and joining applications, mostly marketed under the ESAB brand name. The medical technology segment makes medical devices, including orthopedic braces, reconstructive implants, and other products used for rehabilitation, physical therapy, and pain management. The company generated roughly $3.1 billion in revenue in 2020.

(Source: Morningstar)
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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Domino’s Performs Positive Results for the 2nd Quarter

Sustained strength abroad led us to revisit our international unit growth assumptions, pushing us to the low end of management’s 6%-8% guidance over the next few years (6.4%) and raising our fair value estimate to $410 per share from $386. However, we view the market’s reaction as overblown, with the shares trading up 14.5% at the time of writing against our 6.2% fair value estimate lift. The shares currently trade about 30% ahead of our fair value estimate.

In our view, the most impactful earnings discussion pertained to labor market pressure, with management indicating that restaurant margins (24.5%, up 60 basis points sequentially) were largely attributable to understaffing, as even the largest operators are struggling to attract workers in a historically tight hiring environment. The restaurant workforce remains about 10% smaller than its pre-pandemic level, and operators have increasingly leaned on wage hikes, benefits, signing bonuses, and operational efficiencies to fully staff stores. While we expect the best-capitalized operators with strong restaurant margins (like Domino’s) to best weather the storm, we forecast midterm labor costs 150 basis points higher than 2019 (normalized) levels, at 30.5% of restaurant sales.

The firm’s attention to car-side carryout looks strategically sound, with Domino’s using the channel to compete with quick-service drive-thrus without having to pursue more expensive real estate. The channel offers incremental sales, pushes the firm’s digital mix higher, and requires minimal involvement at the point of sale, alleviating pressure.

Company’s Future Outlook

It is expected that Domino’s to benefit from a shift toward lower cost fulfillment channels like the carryout business (and car side carryout) while continuing to automate noncore tasks like closing tills, managing inventory, and benefiting from optimized labor spending via predictive scheduling. Nonetheless, we remain encouraged by the firm’s long-term upside, with our revised forecast calling for 9.5% average system sales growth, 6% unit growth, and 11.5% EPS growth over the next five years.

Company Profile

Domino’s Pizza is a restaurant operator and franchiser with more than 17,800 stores across 90 countries. The firm generates revenue through the sales of pizza, wings, salads, and sandwiches at company-owned stores, royalty and marketing contributions from franchise-operated stores, and its network of 26 dough manufacturing and supply chain facilities, which centralize purchasing, preparation, and last-mile delivery for more than 6,800 units in the U.S. and Canada. With roughly $16 billion in 2020 system sales, Domino’s is the largest player in the global pizza market, ahead of Pizza Hut, Papa John’s, and Little Caesars.

(Source: Factset)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

Despite a large year-over-year improvement, Gentex’s second quarter was hampered by parts shortages

Male gamer in headphones holds joystick and playing videogame on console or desktop PC, gaming lifestyle, cybersport. Computer games player in his room with neon light, streamer

, but sales fell by nearly 9% versus second-quarter 2019. Gentex shipped about 2 million less units than it expected at the start of the quarter, which caused diluted EPS of $0.36 to miss the Refinitiv consensus of $0.45.

The industry’s supply chains are in turmoil due to the semiconductor shortage impacting chip availability, but other disruptions unrelated to Gentex, such as foam shortages following Texas winter storms, caused automakers to change production at the last minute or refuse shipment of mirrors because other non-Gentex parts never arrived at the automakers’ assembly plants. This supply problem in our view will improve throughout 2021, and the worst of it is occurring in second quarter and early third quarter.

Gentex’s Revenue Growth

The lost production caused management to issue second-half 2021 guidance that implies lower full-year guidance than given in April. Revenue guidance is now $1.88 billion to $1.98 billion, instead of $1.94 billion to $2.02 billion, and we believe that second-half gross margin guidance of 37.5%-38.5% means April’s full-year guidance of gross margin between 39%-40% is not possible. We agree with management’s optimism around 2022 revenue growth being 10%-15%. Gentex’s cash-loaded and debt free balance sheet make times like this easier to get through management seems to be willing to continue share repurchases and spent $115.9 million on that in the second quarter.

Company Profile

Gentex was founded in 1974 to produce smoke-detection equipment. The company sold its first glare-control interior mirror in 1982 and its first model using electrochromic technology in 1987. Automotive revenue is about 98% of total revenue, and the company is constantly developing new applications for the technology to remain on top. Sales from 2020 totaled about $1.7 billion with 38.2 million mirrors shipped. The company is based in Zeeland, Michigan.

(Source: Factset)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
LICs LICs

MA1 Suspended from trading as the Restructure to an ETMF Continues

For the half-year ended December 31, 2020, the gross portfolio return before all fees and expenses was roughly 44.36 percent.

MA1 shareholders unanimously approved the company’s restructuring as an Exchange Traded Managed Fund on May 10th (ETMF).

MA1 was taken off the market on May 28th and will be delisted on June 1st.

Units in the newly formed ETMF Monash Absolute Active Trust (Hedge Fund) are being issued to shareholders on an in-specie basis, with the new ticker MAAT slated to begin trading on the ASX on June 10th.

The ETMF will use a Single Unit (dual registry) Structure, allowing unit holders to buy and sell units on or off the market.

Company Profile

In 2012, Monash Investors was established by one of Australia’s most experienced fund managers in Simon Shields, the previous head of equities at both UBS and CFS, and Shane Fitzgerald a senior equity analyst from UBS and JPMorgan. The firm was set up to manage money in a way that both Simon and Shane felt was simply smarter than riding the share market up and down, instead, attempting to achieve targeted positive returns of double digits p.a. after fees, over a full market cycle while seeking to avoid loss of capital over the medium term. Importantly, it was the experience gained across multiple investment styles and in seeing the pitfalls in managing very large pools of capital that shaped the way the Fund is managed today.

(Source: Factset)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
LICs LICs

AFIC share price hits all time high

Over the shoulder view of and stock broker trading online while accepting orders by phone. Multiple computer screens ful of charts and data analyses in background.

According to AFIC, the Commonwealth Bank of Australia (ASX: CBA) is the largest current position, followed by BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL), Wesfarmers Ltd (ASX: WES), and Westpac Banking Corp. (ASX: WBC).

These top five positions, however, are supplemented by dozens of other ASX shares. And, with the ASX 200 index lately reaching new highs, AFIC would have benefitted from a rising tide lifting its whole portfolio (evidenced by its NTA per share growth).

This is most likely why the AFIC share price has reached an all-time high today. It isn’t the only one. Other LICs in the AFIC mould are also on the rise.

At the present AFIC share price, the organization has a market value of $9.62 billion and a trailing dividend yield of 3.05 percent (or 4.36 percent when AFIC’s full franking credits are considered).

The net tangible assets (NTA) per share increased to $7.45 per share in June (after tax). This is a significant increase over the previous month’s share price of $6.19. This means that for every AFIC share purchased, buyers receive $7.45 in other assets.

Over the last two decades, the AFIC has returned 5.23 percent in capital gains and 6.18 percent in fully franked dividends.

Company Profile

The Australian Foundation Investment Company Ltd (AFIC) is a Listed Investment Company in Australia (ASX: AFI) and it is one of the oldest on the ASX established in 1928.  It aims to provide shareholders with attractive investment returns by growing stream of fully franked dividends and growth in investment of capital. AFIC measures its performance through 2 measures namely portfolio return and the shareholders return. AFIC is presently Australia’s largest LIC, managing a portfolio worth around $8 billion for its stockholders.

(Source: Factset)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.